Perspectives on where our world is heading from a vantage point in Denver, Colorado.

05 October 2011

IRS Declares War On Medical Marijuana

The federal tax code provides that none of the ordinary business expenses of operating a business that sells controlled substances are deductable, even though any reasonable definition of business profit (which is what the income tax imposes a tax upon) allows deductions for costs of goods sold, rent, wages and salaries, worker's compensation insurance, and so on.

The IRS ruled this week that it will apply this rule to medical marijuana dispensaries that are legal under state law, despite a policy of President Obama's Justice Department, from which it has backed away somewhat in recent months, that it will not prosecute such businesses criminally, even though the state law does not create an exception to federal law on this point.

Likewise, the administration has been slow to provide comfort to banks holding accounts for dispensaries, causing them to have to shift to a cash only business model.

All in all, this is one area where there does not seem to be enough of a coordinated policy at the top.